Amendments to Act 87 of 1980

The 1908 Michigan Constitution provided both necessity and just compensation were to be determined by the jury as the finders of fact and law. Agencies had the horrible experience of waiting years for the Michigan Supreme Court to finally determine whether necessity and just compensation were proper. Many of the delegates to the 1962 Constitutional Convention were utility acquisition agents or municipal or County employees. In the hopes that an end to the confusion could be reached, the Convention passed Article X, Section 2. That provision states:

“Private property shall not be taken for public use without just compensation therefor being first made or secured in manner prescribed by law. Compensation shall be determined in proceedings in a court of record.”

I. GOOD-FAITH OFFER PROCEDURE MODIFICATIONS

Prior to Act 87, there were over twenty methods of taking property, creating procedural confusion. Act 87, known as the Uniform Condemnation Procedures Act, alleviated that problem after careful study. From the initial revised Judicature Commission Reports in 1966 through 1979, the Commission sought uniform condemnation procedures. Condemnors demanded a quick-take procedure. Although Act 295 of 1966 allowed for a quick-take procedure, the statute specifically excluded quick takes of residential property. For any large project, the quick take procedure was irrelevant.

Act 87 of 1980 allowed condemnors to quick take any property. To balance this grant of power, the Act required condemnors to appraise the property and make a good-faith written offer of not less than the estimate of just compensation. Owners could challenge the condemnor’s finding of necessity for the taking of the property and whether the offer was made in good-faith. In the few appellate decisions under the 1980 provision, the courts maintained that the condemnor simply had to include its own estimate as the estimate of just compensation.

Condemnors felt aggrieved that there were frequent challenges to the quick takes. The Michigan Constitution does not require that a good-faith offer be at least the condemnor’s estimate of just compensation. In the federal condemnation procedure, there is some basis to conclude that the deposit of estimated just compensation does not need to be at least the appraised value of the property. However, federal legislation has provided that the offers be at least the estimate of just compensation. As of the date of the preparation of the 1963 Constitution, Snaidach, 395 U.S.337; 89 S.Ct. 1820; 23 L.Ed.2d 349 (1969), and W.T. Grant, 416 U.S.600, 94 S.Ct. 1895; 40 L.Ed.2d 406 (1974), had not been decided. Yet, there was recognition by the Constitutional Convention delegates that the Due Process Clause of the Preamble would apply. The delegates felt that the requirement of due process in the preamble precluded the necessity of including the clause as part of the just compensation clause. With the subsequent decisions, supra, not allowing pre-judgment attachments under Michigan Court Rule 3.103(H) following the Supreme Court decisions, it is reasonable to conclude that the scriveners of the 1963 Michigan Constitution intended to provide protection to the owners. An application of Act 87 finding that the estimate need not be “secured” would very likely be deemed unconstitutional by a court reviewing the Constitutional Convention history and applications of the federal constitution.

The 1996 amendments only allows property owners to challenge the taking for a lack of necessity. All other challenges are eliminated.

No challenges are allowed in utility condemnations pursuant to MCLA 213.56(3), which states: “The granting of a certificate of a convenience and necessity by the Public Service Commission pursuant to the Electric Transmission Line Certification Act. . . is binding on the Court.” This is likely to be deemed unconstitutional because it takes away any review from the Court which is contrary to the requirement that all actions of agencies are subject to judicial review.

II. ENVIRONMENTAL CONTAMINATION ISSUES

The 1980 legislation did not need to consider environmental contamination and the effects of the contamination on the property valuation process. Without enabling legislation, condemnors could not perform test borings on property contemplated for condemnation without trespassing upon the property. Entry to inspect was allowed, but soil sampling had not been provided in the 1980 legislation. Borings were necessary to ascertain whether construction of the proposed project was viable in terms of determining subsoil conditions as well as the extent of contamination. In 1988, the statute was amended in what is now MCLA 213.54(3). The provision allows an agency to enter upon the property for the purpose of making necessary “surveys, measurements, examinations, tests, soundings, and borings; taking photographs or samplings . . . conducting an environmental inspection; conducting archeological studies pursuant to Section 106 of Title 1 of the National Historic Preservation Act.” The archeological provision was added in the 1996 amendment.

The 1994 amendment to Act 87, being MCLA 213.66(a), provides for procedure whereby the agency may either specifically exclude the federal and state cost recovery action or merge the actions, thereby reducing what would otherwise be the just compensation as part of the original filing. If an agency reserves its rights to bring a separate action, the owner must request a merger within the time allotted for answering the complaint. The statute provides circumstances where a merger is allowed.

III. PROMPT NOTICE REQUIREMENTS

Agencies were also concerned with what they considered “surprise” claims made by owners. In cases with multiple pieces of business equipment, all of the items frequently were not categorized and included in the agency’s appraiser’s estimate of just compensation. Because the agency expert missed business items, owners would seek payment for the missing items and reimbursement of the one-third attorney fee. This irritated the agencies to no end. The owners would also claim that business interruption and going concern were missed by the agency when the agency had no knowledge or reason to know if the business losses should be valued. This, in part, was due to the inability of the agencies to obtain business information prior to the filing of the condemnation complaint.

Agencies have maintained that they need financial data to properly determine just compensation. The 1996 legislation, at 213.55(2), allows the agency to obtain all necessary tax returns, financial information, and other relevant financial information for a period not to exceed five (5) years before the agency’s request. The owner is provided only twenty-one (21) days, barring good cause shown, to provide the information. The owner may be reimbursed up to One Thousand ($1,000.00) Dollars for obtaining and producing the information.

An obvious problem is confidentiality of the information. MCLA 213.55(2), in part, requires the agency to keep documents and other information confidential. However, there is no written FOIA protection as of this date. An amendment to the FOIA has not as yet been made.

If the owner fails to provide the requested documentation, the agency has the right to obtain an immediate hearing to show cause why the owner shall not be held in contempt. If a show cause is required, the agency shall be awarded all expenses incurred in obtaining the documents and other information.

The amendment also provides the agency with the opportunity to make a “second offer” on items it has missed. MCLA 213.55(3) requires the owner to provide in writing, the greater of sixty (60) days after the complaint is filed or ninety (90) days after the good-faith written offer, a statement as to those items in which the original good-faith offer either did not include or fully included one or more items of compensable property or damage for which the owner intends to claim the right to just compensation. The time for the claim may be extended upon a showing of good cause. In response, the agency may provide written notice that it contests the compensability of the claim, establish an amount that it believes to be just compensation for the item of property or damage, or reject the claim. If the agency establishes an amount it believes is compensation for the item of property or damage, the agency shall submit a good-faith written offer for the item of property or damage. It is from this point that the attorney fee begins on any of the items the agency had originally missed.

In addition to the notice requirements of MCLA 213.55, MCLA 213.61(1) allows the court to enter a scheduling order for provision and exchange of appraisals. Further, MCLA 213.61 requires that no appraisal may be used unless provided pursuant to the terms of the statute with exception for those specifically authorized by the court. Only upon a showing of good cause for the failure to provide the appraisal and a finding that the interests of the other party have not been prejudiced may an appraisal be supplied after the date set forth in the court’s scheduling order.

IV. VARIANCE GRANTS

Properties taken for road widenings are generally conforming at the time of the taking. After the taking, the properties frequently are non-conforming. Arguably, one could conclude that this is a risk which simply should be included in the just compensation process as it is somewhat analogous to a “possibility of rezoning” determination. Arguably, as such, one could maintain that the concern about the prospective illegal use is simply part of the just compensation whereby a reasonable and knowledgeable buyer and seller would determine the effect as part of the marketplace of the just compensation award. However, the risk is unfairly burdensome upon an owner where there is no certainty as to what a local governmental agency shall do years into the future. In Florida, an appellate panel held that when a building became non-conforming due to a road widening, it should be paid for. The Florida Supreme Court reversed the appellate panel. In a Michigan case, a trial court held a building must be demolished because of the nonconformity created by the condemnation. The case became moot after the owner removed the front of the building in order to be conforming then built onto the side and rear of what was left. The case is pending decision in the Michigan Court of Appeals.

Obtaining a result in which a state agency has any control over local jurisdiction zoning is overwhelming. Local land use bodies are extremely jealous of their rights of control over local property use.

This problem with non-conforming uses being determined or potentially being determined as illegal in the future has been alleviated by MCLA 213.54(2).

The burden is placed upon the agency to obtain the zoning variance at the local zoning level. Upon obtaining a grant of the variance into the future, the local governmental entity having jurisdiction to grant the variance shall bind the decisions of future boards within the jurisdiction. The grant of the variance does not guarantee that other non-conforming uses will not cause a bar to expansion. However, the variance created by the partial taking shall not be a point of consideration in future grants by the government entity having the jurisdiction.

In addition to the provisions of MCLA 213.54(2), enabling legislation is being appended to each of the statutes dealing with the jurisdictions which have control over the granting of variances; being cities, townships, counties and villages.

Even though the variance is assured into the future, the owner may still maintain that the non-conforming use affects the value of the property. By example, if a setback is moved from the legally non-conforming 50 feet to a non-conforming 15 feet, even though the governmental entity with jurisdiction to grant the variance has granted such a variance pursuant to MCLA 213.54(2), an owner very well may argue that the effect of the taking may serve to lower the after value of the property even though the property has been rendered legally conforming through the variance.

V. APPRAISAL STANDARDS

Another area of concern relates to the back door, frequently ridiculous, albeit admissible appraisals. Some types of standards of appraisal procedure are mandatory if parties are to be fairly apprised of the issues of just compensation in their individualized cases. An ancillary problem was the failure of owners to provide appraisals prior to Mediation, thereby disenfranchising the agency from understanding the damages.

The appraisal industry has undergone radical change over the past ten years. The Savings & Loan fiasco created a whole new set of requirements for appraisal practice. Every jurisdiction now requires a standardized procedure for the licensing of appraisers.

The requirements of MCLA 213.51(2) require some similar conformance to the licensing procedure which is required of any appraiser valuing federally insured property. Especially important is the clause that states the appraisal shall comply with the “standards adopted under section 2609 of Act No. 299 of the Public Acts of 1980”. This requires an analysis complying with appraisal standards, including expressions of any limitation on the appraisal within the appraisal itself.

VI. COURT IMPOSED SANCTIONS

Agencies were aggrieved that the Mediation and Offer of Judgment process would place them in the position of having to pay attorney fees twice. Pursuant to MCLA 213.66(3), a one-third attorney fee would be paid for the increase. Then, where the Mediation or Offer of Judgment was unsuccessfully rejected by the agency, it would have to pay sanctions a second time. (See MDOT v. Dyl, 177 Mich. App. 330 (1989); 441 N.W.2d 18 (1989).

The new rule on the offer of judgment and mediation sanction payments being made to the court is probably violative of the Constitution in two ways. First, it may possibly be construed as an abridgment of the power of the court’s promulgation of rules. See, Perrin v. Peuler, 373 Mich 531; 130 N.W.2d 4 (1964), in which a statute in denigration of a court rule was held invalid. There is also an argument that costs against an owner to be paid over to the government is in violation of a Constitutional protection of compensation for an involuntary taking by a governmental agency. A similar provision to pay costs over to the condemnor was held violative of the Colorado Constitution in the recent case of City of Westminster v. Hart, 928 P.2d 758 (1996).

VII. GENERAL BENEFITS AMENDMENT

SJI2d 90.12 states, in part, that the effects of the project are to be considered in the damages for the after situation. Agencies frequently argue that such claims are damnum absque injuria because the owners are making claims for items which would not be compensated if the property was not being touched. Agencies have therefore requested relief in the form of the statutory protection provided by MCLA 213.70(2), which states:

The general effects of a project for which property is taken, whether actual or anticipated, that in varying degrees are experienced by the general public or by property owners from whom no property is taken, shall not be considered in determining just compensation. A special effect of the project on the owner’s property that, standing alone, would constitute a taking of private property under section 2 of article X of the state constitution of 1963 shall be considered in determining just compensation. To the extent that the detrimental effects of a project are considered to determine just compensation, they may be offset by consideration of the beneficial effects of the project.

MCLA 213.70, MSA 8.265(20), has been modified in order to present a general effects provision. MCLA 213.70(1) provides that changes in market value prior to the filing of the complaint substantially due to the general knowledge of the imminence of the acquiring by the agency, other than that within the regional control of the owner, shall be disregarded in determining fair market value. The exception for what is provided in Section 23 is that the property shall be valued as though the acquisition had not been contemplated. The notion that payment should not be made for damages which are:

experienced by the general public or by property owners from whom no property is taken shall not be considered in determining just compensation. A special effect of the project on the owner’s property that, standing alone, would constitute a taking under Section 2 of Article X of the State Constitution of 1963 shall be considered in determining just compensation. To the extent that the detrimental effects of a project are considered to determine just compensation, they may be offset by consideration of beneficial effects of the project.

This provision might be the most certain area of constitution challenge. The language is intended to allow offsets of the general benefit against the general effect of a condemnation project. Yet, the Constitutional Convention minutes elucidate that the delegates intended to pay compensation for all damages when a portion of the property is taken. However, untouched properties were provided no constitutional protection.

This notion of damnum absque injuria applies only to untouched properties. The Constitution provides full compensation for all damages when an owner is partially taken. The scriveners of the 1996 amendments to Act 87 would argue that the Michigan Constitutional Convention delegates intended to limit Just Compensation. However, the Convention minutes show the exact opposite. An overview of the commentary of those who would be viewed as “pro government” as well as “pro owner” members at the Convention illustrates that the Convention delegates understood that all damages would be paid for those who were touched by the taking physically, while prohibiting payment for that class of individuals who might have been hurt financially by a taking but did not have a part of their property taken.

Delegate Stafseth, who consistently spoke on behalf of the majority view throughout the debate on the eminent domain clause, requested that the clause “just and equitable compensation” be taken out because the Supreme Court had already construed this to encompass damages to the property taken. He then went on to note that without removal of the clause, anyone who is damaged, without regard to whether a portion of the property was taken, would have a right to intervene and seek recompense. In order to avoid the opportunity for those with losses to intervene, he sought the amendment removing the clause. (Page2583). He then went on to speak about the whole notion of “damages” in the proposal maintaining “that if the supporters of the ‘taking or damage’ clause explained why the addition should be made, and held forth the reason the ‘damage’ was added was to aid those who were not physically touched.” At page 10 of the Preparatory Commission report, the proponents of Proposal 67 maintained:

Thus far our discussion has been directed to losses borne by a property owner whose property is taken; if, on the other hand, an owner of property suffers damages as the result of a public improvement but his land was not actually taken or entered upon, he received no compensation at all. It has traditionally been felt that there is no moral obligation to compensate an owner of property which has been damaged as the result of a public improvement. (Constitutional Convention Minutes, p. 2587).

The pro-owner proponents recognized that the amendment was to preclude those people who lived “3 blocks and 5 blocks away from obtaining compensation”. (Ms. Donnelly, at page 2598).

Delegate Allen, also speaking on behalf of the majority throughout the debate on the eminent domain clause, distinguished those cases where people were taken from those who were not touched. He noted that the legislature can award compensation for those who are not touched, such as what was provided by the grade separation statute. (Constitutional Convention Minutes, p. 2595).